An extra 750,000 people will join the ranks of the long-term unemployed over the next four years due to deteriorating economic circumstances, according to new government forecasts.

The figures, lodged in the House of Commons library last week by the Department for Work and Pensions (DWP), show an increase of 32% from 2.4 million to 3.3 million in the number of people expected to be entered into the Work Programme – the government's flagship project for finding work for those who are typically out of work for longer than 9-12 months.

More than 100,000 prison leavers will now also be entered into the Work Programme for the first time but when this group excluded from the new total, the upward revision compared with 2010 DWP figures is 743,000.

The UK slipped into negative growth during the last quarter by 0.2% leading to fears of a double-dip recession and further hikes in unemployment.

A DWP spokesperson said the figures were also released in order to give fair warning to the charities and companies that administer the Work Programme, such as Ingeus-Deloitte, the security company G4S, and Action for Employment or A4e, as they struggle to fulfil the terms of current contracts and get people into jobs.

The main rise in entry to the Work Programme comes for those aged 18-24. The DWP now expects an 83% leap on last year's numbers and a further 71% rise for 2013/14.

The biggest increase in overall numbers is expected to come in 2013/14, when just over a three-quarters of a million extra people are expected to be looking for work under the Work Programme, 362,000 more than previously predicted.

In a statement, the DWP said: "The country faces a changing economic picture as shown by the latest economic and fiscal outlook from the Office for Budget Responsibility. It is only right that we revise our projections for people entering the Work Programme to reflect this."

The new figures also increase worries about the scarring effect that long term unemployment will have on the British labour market and, what politicians have termed, the "lost generation".

Chris Goulden, the head of research and policy at the Joseph Rowntree Foundation, said the figures were worrying, adding: "There's definitely a scarring effect, even for short periods of unemployment and the evidence is worse when you're younger. And protracted periods can start to affect your career later in life."

Paul Gregg, professor of economic and social policy at the University of Bath, who helped coin the phrase "unemployment scarring", was also concerned by the latest figures.

"We know that exposure to significant periods without work leads to long-term damage. We know that the costs of that to the individuals in higher future unemployment, lower wages, health-related problems is very large."

"This recession has been particularly focused on young people, and what is depressing at the moment is that we seem to be entering a second phase of the recession and it is still very much the case that all the pain is being borne by the young."

The revised estimates come as a National Audit report criticised the programme for being "over-optimistic" and said that the programme was only likely to help 25% of those out of work opposed to a government estimate of 40%.

The 32% increase in jobless people entering the Work Programme is likely to put further longer-term strain on the private companies and charity subcontractors that provide the back-to-work schemes, triggering fears that a number could go bust, and potentially putting the entire £5bn programme at risk.

The 18 major contractors face demanding targets – getting more than a third of the programme's projected 3.3 million clients into sustainable work by 2015-16 - in order to activate fees paid to them under the government's payment-by-results model.

Although contractors would receive increased upfront attachment fees of nearly £100m as a result of the higher volumes of work programme clients, the rising influx of new clients, coupled with the deteriorating job market, could force on them massive extra costs that could threaten their financial viability in the medium term.

Work Programme industry experts the Centre for Economic and Social Inclusion said: "The weaker labour market outlook means higher than anticipated Work Programme referrals and a much bigger challenge for Work Programme providers.

The figures also show a projected decrease in the numbers of long-term sick and disabled people entering the work programme.

This is believed to reflect the increasing numbers of incapacity benefit claimants who are found to be unable to work as a result of work capability assessments, as well as an explosion in those who are appealing against what they believe to be unfair decisions that they are fit for work.